Skip to main content

Entry mode choice of Chinese enterprises: The impacts of country risk, cultural distance and their interactions

Abstract

Recent years have witnessed a phenomenal growth in the number of Chinese enterprises “going global.” Drawing on three leading theoretical perspectives including the transaction cost theory, organizational capability theory and eclectic theory, this paper develops hypotheses to test how country risk and cultural distance are associated with entry mode choices of enterprises from China. Based on a sample of 167 Chinese companies, an empirical investigation has been conducted employing logistic regression and hierarchical regression analyses. Our results show that country risk and cultural distance have significant impact on entry mode choice. With the increase of country risk or cultural distance, businesses prefer non-ownership-based entry modes such as trade and licensing. However, entry mode choice is also noticeably influenced by the interaction between country risk and cultural distance, which is a new finding of international entry mode research. Furthermore, private enterprises are more likely to adopt high-involvement entry mode than the state-owned enterprises, and service enterprises are less likely to use high-involvement entry mode, which suggests that different approaches are used to deal with country risk and cultural distance by various types of enterprises.

References

  1. Agarwal, S., & Ramaswami, S. N. 1992. Choice of foreign market entry mode: Impact of ownership, location and international factors. Journal of International Business Studies, 23: 1–27.

    Article  Google Scholar 

  2. Agarwal, S. 1994. Socio-cultural distance and the choice of joint ventures: A contingency perspective. Journal of International Marketing, 2(2): 63–80.

    Google Scholar 

  3. Anderson, E., & Gatignon, H. 1986. Modes of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies, 17(3): 1–26.

    Article  Google Scholar 

  4. Brouthers, K. D., & Brouthers, L. E. 2001. Explaining the national cultural distance paradox. Journal of International Business Studies, 32(1): 177–189.

    Article  Google Scholar 

  5. Brouthers, K. D., & Brouthers, L. E. 2003. Why service and manufacturing entry mode choices differ: The influence of transaction cost factors, risk and trust. Journal of Management Studies, 40(5): 1179–1204.

    Article  Google Scholar 

  6. Brouthers, K. D., Brouthers, L. E., & Werner, S. 2002. Industrial sector, perceived environmental uncertainty and entry mode strategy. Journal of Business Research, 55: 495–507.

    Article  Google Scholar 

  7. Buckley, P. J., & Casson, M. 1976. The future of the multinational enterprise (1st edition). London: The MacMillan Press.

    Google Scholar 

  8. Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H., & Zheng, P. 2007. The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38(4): 499–518.

    Article  Google Scholar 

  9. Chen, H., & Hu, M. Y. 2002. An analysis of determinants of entry mode and its impact on performance. International Business Review, 11(2): 193–210.

    Article  Google Scholar 

  10. Contractor, F. J., & Kundu, S. K. 1998. Modal choice in a world of alliances: Analyzing organizational forms in the international hotel sector. Journal of International Business Studies, 29(2): 325–358.

    Article  Google Scholar 

  11. Cui, L., & Jiang, F. 2009. FDI entry mode choice of Chinese firms: A strategic behavior perspective. Journal of World Business, 44: 434–444.

    Article  Google Scholar 

  12. Daniels, J., Radebaugh, L., & Sullivan, D. 2010. International business: Environments and operations (13th edition). New Jersey: Prentice Hall.

    Google Scholar 

  13. Demirbag, M., Tatoglu, E., & Glaister, K. W. 2009. Equity-based entry modes of emerging country multinationals: Lessons from Turkey. Journal of World Business, 44: 445–462.

    Article  Google Scholar 

  14. Deng, P. 2007. Investing for strategic resources and its rationale: The case of outward FDI from Chinese companies. Business Horizons, 50(1): 71–81.

    Article  Google Scholar 

  15. Erramilli, M. K., & Rao, C. P. 1993. Service firms’ international entry-mode choice: A modified transaction-cost analysis approach. Journal of Marketing, 57(3): 19–38.

    Article  Google Scholar 

  16. Erramilli, M. K. 1996. Nationality and subsidiary ownership patterns in multinational corporations. Journal of International Business Studies, 27(2): 225–248.

    Article  Google Scholar 

  17. Euromoney (2008). Country risk Mar 2008: Overall results. Retrived from http://proquest.umi.com/pqdweb?did=1455668391&sid=1&Fmt=3&clientId=26489&RQT=309&VName=PQD

  18. Hill, C. W., Hwang, P., & Kim, W. C. 1990. An eclectic theory of the choice of international entry mode. Strategic Management Journal, 11(2): 117–128.

    Article  Google Scholar 

  19. Hofstede, G., & Hofstede, G. J. 2005. Cultures and organizations: software of the mind. London: Mc Graw-Hill.

    Google Scholar 

  20. Hu, S. H. 2006. International business management. Guangzhou: Sun Yat-sen University Press.

    Google Scholar 

  21. Kim, W. C., & Hwang, P. 1992. Global strategy and multinationals’ entry mode choice. Journal of International Business Studies, 23(1): 29–54.

    Article  Google Scholar 

  22. Klein, S., Frazier, G. L., & Roth, V. J. 1990. A transaction cost analysis model of channel integration in international markets. Journal of Marketing Research, 27(May): 196–208.

    Article  Google Scholar 

  23. Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19(3): 411–432.

    Article  Google Scholar 

  24. Madhok, A. 1997. Cost, value and foreign market entry mode: The transaction and the firm. Strategic Management Journal, 18(1): 39–61.

    Article  Google Scholar 

  25. Ministry of Commerce of People’s Republic of China (2010). Statistical blletin of China’s outward foreign direct investment in 2009 Beijing, China..

  26. Pak, Y. S., & Park, Y. R. 2004. Global ownership strategy of Japanese multinational enterprises: A test of internalization theory. Management International Review, 44(1): 3–21.

    Google Scholar 

  27. Quer, D., Claver, E., & Rienda, L. 2007. The impact of country risk and cultural distance on entry mode choice: An integrated approach. Cross Cultural Management: An International Journal, 14(1): 74–87.

    Article  Google Scholar 

  28. Randoy, T., & Dibrell, C. C. 2002. How and why Norwegian MNCs commit resources abroad: Beyond choice of entry mode. Management International Review, 42(2): 119–140.

    Google Scholar 

  29. Root, F. R. 1994. Entry strategies for international markets. New York: Lexington Books.

    Google Scholar 

  30. Shane, S. 1994. The effect of national culture on the choice between licensing and direct foreign investment. Strategic Management Journal, 15: 627–642.

    Article  Google Scholar 

  31. Sutcliffe, K. M., & Zaheer, A. 1998. Uncertainty in the Transaction Environment: An Empirical Test. Strategic Management Journal, 19(1): 1–23.

    Article  Google Scholar 

  32. Taylor, C. R., Zou, S., & Osland, G. E. 2000. Foreign Market entry strategies of Japanese MNCs. International Marketing Review, 17(2): 146–163.

    Article  Google Scholar 

  33. Williamson, O. E. 1975. Markets and hierarchies: Analysis and antitrust implications. New York: The Free Press.

    Google Scholar 

  34. Xu, Y. H., Hu, S. H., & Fan, X. A. 2009. The impact of country risk and cultural distance on transnational equity investments: Empirical evidence of Chinese enterprises’ shareholdings in overseas listed companies. Chinese Management Studies, 3(3): 235–248.

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Yuehua Xu.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Xu, Y., Hu, S. & Fan, X. Entry mode choice of Chinese enterprises: The impacts of country risk, cultural distance and their interactions. Front. Bus. Res. China 5, 63–78 (2011). https://doi.org/10.1007/s11782-011-0121-8

Download citation

Keywords

  • country risk
  • cultural distance
  • entry mode choice
  • international business